Analysis of over 6,000 companies across 49 exchanges points to need for regulatory mandate
World leaders and champions of industry have put the spotlight on climate issues in Davos, but it seems the largest companies in the world have to shape up when it comes to ESG disclosures.
The report Measuring Sustainability Disclosure: Ranking the World's Stock Exchanges 2019, which was released by Corporate Knights, draws on an analysis of 6,261 large companies across 49 exchanges spanning the globe. Specifically, it focuses on corporate disclosure trends on seven sustainability indicators from 2013 to 2017.
Of the companies examined, 85% made disclosures on payroll; 41% on greenhouse gases (GHGs); 33% on energy; 28% on water; 27% on waste; 24% on injuries; and 22% on employee turnover.
Corporate Knights reported that disclosure rates for GHGs, energy, water, waste, payroll, and injuries have flatlined over the five-year period from 2013 to 2017; only employee-turnover disclosure improved, clocking in at an annualized growth rate of 9.2%.
Waste disclosure stalled, exhibiting a 0% annual growth rate; water and pay disclosure growth rates just barely reached positive territory at 0.2% and 0.1%, respectively. GHG disclosure actually dipped with a -0.1% growth rate, with a 2015 spike to 41.7% disclosure among companies being offset by a 2017 drop to 41.3% disclosure.
Corporate Knights noted that the weakening trend flies in the face of increasing investor interest in sustainability data, as well as a host of significant ESG data-disclosure initiatives.
It advanced two likely reasons for the trend:
- A shift in the economy’s make-up toward more tech companies (which tend to disclose less ESG information); and
- Increased scrutiny and accountability around ESG data, including litigation risks, causing a pullback on ESG transparency
Turning to stock exchanges, the report commended Nasdaq Helsinki for its second straight year at the top of the disclosure performance ranking, with excellent disclosure rates across the board.
“Among environmental indicators, the Finnish companies did especially well in disclosing energy use and GHG emissions, which were disclosed by 32 of the 36 companies evaluated,” Corporate Knights said.
The other exchanges gracing the top five included the BME Spanish stock exchanges, Euronext Paris, Euronext Lisbon, and Johannesburg Stock Exchange. All top 10 ranked stock exchanges, it was noted, have mandatory, prescriptive requirements for sustainability disclosure.
“In the short-term, exchanges and regulators should set a mandatory requirement for climate disclosure (building on the recommendations in the Financial Stability Report of the Task Force on Climate-related Financial Disclosures) on a ‘comply or explain’ basis, which can help maintain clear expectations while allowing companies the flexibility they need,” said Corporate Knights CEO Toby Heaps.
